A lot of people, including the Chinese government, have been saying that there is a real estate bubble in China. My question is how can a bubble be sustained if practically everybody know it’s a bubble? Wouldn’t you think that it would cause a lot of people to panic and start selling off their assets, then causing a spiral that pops the bubble?
Because it’s incorrect that practically everybody knows. It’s just rhetoric.
It’s also Jim Rogers, a China expert, who has been saying there is a bubble and that pretty much everybody in China knows it.
An asset bubble does not appear out of nowhere. It can exist if large numbers of folks deny it and it may not exist when large numbers of folks believe it exists. It is the product of malinvestments in the structure of production made by entrepreneurs allocating productive resources with alternate uses (Financial capital is a resource with lots of other uses.) into projects that consumers seem to desire under the current circumstances but will not desire if the circumstances change (EVEN A LITTLE). If you are part of this event it is very difficult to determine which particular events are included in the bubble and which are not.
At the burst of the bubble, 94% of conforming mortgages and 85% of all other mortgages were paid on time. What was it 6 months or a year prior: 96% and 88% respectively? This whole burst came because of some real subtle factors.
My significant other is in real estate, she was selling homes like crazy right up until the whole thing crashed. Is it rational to not manage the sale of a home from a willing seller to a willing buyer? Is your particular sale part of the event? Is this person selling at a low price to pay off a mortgage part of the pop or just an event? Not a single one of these questions is obvious until the crash happens.